Academic literature on the topic 'Anticipated in ation effect; liquidity effect'

This study investigates the effect of firm’s attributes on non-performing loans of listed deposit money banks in Nigeria. Firm attributes was proxied by (firms size, liquidity and capital adequacy) while non-performing loans was proxied by (the ratio of non-performing loans to total loan). 2010-2019 were the period under review. The study adopts the ex-postfacto research design. Annual data used in the study were sourced from the fact books of the Nigerian stock exchange and the financial statement of the banks. Descriptive statistics, correlation matrix and the ordinary least square (OLS) multiple regression techniques were the main statistical tools used in the analysis of data. Additionally, the study conducted hausman test to choose between the fixed and random effect model which will be acceptable. The anticipated income theory was relied on as it provides the most useful theoretical explanation for the study. The result of the regression reveals that, firm size and liquidity has no significant effect of non-performing loan, while capital adequacy has significant effect on non-performing loans. Based on the findings, the study concludes that the CBN should raise capital adequacy ratio from10% since increasing CAR reduces NPLs base on the findings of this study. Banks should also sure up their capital based because it serve as a buffer and it will enables them absorb the challenges that may arise from the volume of non-performing loan they may encounter..

Purpose: The study explored monetary policy effect on inflation stabilization in Nigeria. Increasing levels of indebtedness may have reduced the fiscal space for fiscal policy intervention and this leaves monetary policy as the real tool of choice for macroeconomic stabilisation. The question we need to ask then is, how effective is this tool of choice?Methodology: Monthly time series data from 2009-2018 were used in estimating the model. The ADF test for the stationarity, the johansen cointegration test and the vector error correction model were utilized in testing the variables. The findings from the unit root test did indicate stationarity at first difference 1(1). The cointegration (Johansen) test indicates that there was a nexus linking inflation and all the regressors adopted in the long term.Findings: The result of the VECM for the two estimated models shows a self-equilibrating mechanism of 14 per cent and 32 per cent for the first and second models respectively. The findings further reveal that the variables; liquidity ratio, policy rate (MPR), exchange rate, reserve requirement and treasury bills rate all had an effective impact on the inflation rate and that that effect was very significant. Hence, the CBN's monetary policy shocks do seem to have the expected traction on the Nigerian economy.Unique Contribution: The results make it pertinent for the CBN to utilize all the policy measures adopted in order to keep inflation within acceptable thresholds and prepare to keep inflation within the targeted range of 6-9 per cent, no matter the anticipated or unanticipated strong head winds.

The effect of the novel coronavirus (Covid-19) pandemic has resulted in current and future liquidity, balance sheet, and cash flow problems. There is an anticipated decline in the profitability of the businesses during this uncertain period and attention has been turned to the directors’ ‘duties and liabilities’ to creditors when the company is on the verge of insolvency. Directors have to strike a balance among the shareholders, creditors, and workers in the corporate restructuring process. In engaging with these stakeholders during the transformation process, the directors play a key role. It is about quick choices and decisions to be taken to save a business on the verge of insolvency, and it is therefore vital that directors act at the first sign of financial distress. There is a general duty for directors not to trade when insolvent or close to the point of insolvency. Directors also have a contractual obligation to avoid insolvent trading. This article discusses the duties of directors under the Companies Act 2016 (CA 2016) to avoid insolvent trading. It further discusses by analysing based on the comparative study with other selected jurisdictions. This article proposes that while it is important to protect creditors’ interest by making the directors personally liable for insolvent trading, for the best interest of all stakeholders, there should be a balance between the security of creditors and the rescue of the company.

Purpose The life insurance industry has been exposed to high levels of longevity risk born from the mismatch between realized mortality trends and anticipated forecast. Annuity providers are exposed to extended periods of annuity payments. There are no immediate instruments in the market to counter the risk directly. This paper aims to develop appropriate instruments for hedging longevity risk and providing an insight on how existing products can be tailor-made to effectively immunize portfolios consisting of life insurance using a cointegration vector error correction model with regime-switching (RS-VECM), which enables both short-term fluctuations, through the autoregressive structure [AR(1)] and long-run equilibria using a cointegration relationship. The authors also develop synthetic products that can be used to effectively hedge longevity risk faced by life insurance and annuity providers who actively hold portfolios of life insurance products. Models are derived using South African data. The authors also derive closed-form expressions for hedge ratios associated with synthetic products written on life insurance contracts as this will provide a natural way of immunizing the associated portfolios. The authors further show how to address the current liquidity challenges in the longevity market by devising longevity swaps and develop pricing and hedging algorithms for longevity-linked securities. The use of a cointergrating relationship improves the model fitting process, as all the VECMs and RS-VECMs yield greater criteria values than their vector autoregressive model (VAR) and regime-switching vector autoregressive model (RS-VAR) counterpart’s, even though there are accruing parameters involved. Design/methodology/approach The market model adopted from Ngai and Sherris (2011) is a cointegration RS-VECM for this enables both short-term fluctuations, through the AR(1) and long-run equilibria using a cointegration relationship (Johansen, 1988, 1995a, 1995b), with a heteroskedasticity through the use of regime-switching. The RS-VECM is seen to have the best fit for Australian data under various model selection criteria by Sherris and Zhang (2009). Harris (1997) (Sajjad et al., 2008) also fits a regime-switching VAR model using Australian (UK and US) data to four key macroeconomic variables (market stock indices), showing that regime-switching is a significant improvement over autoregressive conditional heteroscedasticity (ARCH) and generalised autoregressive conditional heteroscedasticity (GARCH) processes in the account for volatility, evidence similar to that of Sherris and Zhang (2009) in the case of Exponential Regressive Conditional Heteroscedasticity (ERCH). Ngai and Sherris (2011) and Sherris and Zhang (2009) also fit a VAR model to Australian data with simultaneous regime-switching across many economic and financial series. Findings The authors develop a longevity swap using nighttime data instead of usual income measures as it yields statistically accurate results. The authors also develop longevity derivatives and annuities including variable annuities with guaranteed lifetime withdrawal benefit (GLWB) and inflation-indexed annuities. Improved market and mortality models are developed and estimated using South African data to model the underlying risks. Macroeconomic variables dependence is modeled using a cointegrating VECM as used in Ngai and Sherris (2011), which enables both short-run dependence and long-run equilibrium. Longevity swaps provide protection against longevity risk and benefit the most from hedging longevity risk. Longevity bonds are also effective as a hedging instrument in life annuities. The cost of hedging, as reflected in the price of longevity risk, has a statistically significant effect on the effectiveness of hedging options. Research limitations/implications This study relied on secondary data partly reported by independent institutions and the government, which may be biased because of smoothening, interpolation or extrapolation processes. Practical implications An examination of South Africa’s mortality based on industry experience in comparison to population mortality would demand confirmation of the analysis in this paper based on Belgian data as well as other less developed economies. This study shows that to provide inflation-indexed life annuities, there is a need for an active market for hedging inflation in South Africa. This would demand the South African Government through the help of Actuarial Society of South Africa (ASSA) to issue inflation-indexed securities which will help annuities and insurance providers immunize their portfolios from longevity risk. Social implications In South Africa, there is an infant market for inflation hedging and no market for longevity swaps. The effect of not being able to hedge inflation is guaranteed, and longevity swaps in annuity products is revealed to be useful and significant, particularly using developing or emerging economies as a laboratory. This study has shown that government issuance or allowing issuance, of longevity swaps, can enable insurers to manage longevity risk. If the South African Government, through ASSA, is to develop a projected mortality reference index for South Africa, this would allow the development of mortality-linked securities and longevity swaps which ultimately maximize the social welfare of life assurance policy holders. Originality/value The paper proposes longevity swaps and static hedging because they are simple, less costly and practical with feasible applications to the South African market, an economy of over 50 million people. As the market for MLS develops further, dynamic hedging should become possible.

This study investigates the effect of firm’s attributes on non-performing loans of listed deposit money banks in Nigeria. Firm attributes was proxied by (firms size, liquidity and capital adequacy) while non-performing loans was proxied by (the ratio of non-performing loans to total loan). 2010-2019 were the period under review. The study adopts the ex-post-facto research design. Annual data used in the study were sourced from the fact books of the Nigerian stock exchange and the financial statement of the banks. Descriptive statistics, correlation matrix and the ordinary least square (OLS) multiple regression techniques were the main statistical tools used in the analysis of data. Additionally, the study conducted hausman test to choose between the fixed and random effect model which will be acceptable. The anticipated income theory was relied on as it provides the most useful theoretical explanation for the study. The result of the regression reveals that, firm size and liquidity has no significant effect of non-performing loan, while capital adequacy has significant effect on non-performing loans. Based on the findings, the study concludes that the CBN should raise capital adequacy ratio from10% since increasing CAR reduces NPLs base on the findings of this study. Banks should also sure up their capital based because it serve as a buffer and it will enables them absorb the challenges that may arise from the volume of non-performing loan they may encounter..

PurposeThis paper examines whether ownership type has a moderating influence on dividend payouts during the COVID-19 pandemic crisis with respect to changes in profits. Future uncertainties because of the pandemic will result in a perceived need for liquidity within the company, but retaining cash may be risky for shareholders who could look for less risky alternatives. The dividend payout strategy is thus even more closely related to the overall type concentration and strategy of the owners during the crisis.Design/methodology/approachThe effects are explored and tested on early data from 2019 to 2020 of Finnish companies using ANCOVA while controlling for profitability and sector variables.FindingsA significant effect on dividend payout during the COVID crisis was found when the companies are dominantly held by individual owners validating early suggestions on such an influence. Therefore, this study contributes further to the academic debates on the influence of ownership concentration in times of crises. This study lists certain sectors which experience diminished profits during such a crisis which pinpoints sector separation in future discussions.Research limitations/implicationsThis study explores early data from a specific context in the Nordic countries. However, it does so out of purpose as explained in the paper.Practical implicationsOwnership type and concentration matters when it comes to dividend payout decisions under uncertainty with regard to changes in profit. Investors need to accept these behavioural insights into their decisions.Originality/valueThis study examines the signalling effect of dividends by analysing how actual or anticipated change in profitability due to a crisis is reflected by owners and leads to dividend payout decisions under uncertainty.

The objective of this study was to analyze the anticipated effects of the application of the International Financial Reporting Standard (IFRS9), which replaced the International Standard ( IAS 39), on the Arab banks. The obligatory application of the new standard will take place on the beginning of 2018. The application requirements of this standard constitute a great challenge to the Arab banks, in the fields of credits, finance and the banking and accounting systems. The study represented the International Financial Reporting Standard (IFRS 9) and the requirements of classification and measurement of the obligations, with special focus on the differences between the two standards. The study as well, focused on the challenges which face the standard application and the effect of this application on the banking system, with special focus on the expected credits loss (ECL). The study represented examples of some Arab banks experiences and evaluated these experiences. The study has come out with some results, including that the change of the (ECL) model will create some impediments on the credit and finance policies of the Arab banks, whereas the standard (IFRS9) will strengthen the shareholders and depositors trust, because it adopts a perceptional policy which avoids the expected loss which, in turn, reduces the liquidity risk and the failure of the obligations payment. The study also proposed some recommendations.

The article examines modern approaches to the organization of the risk management process in Ukrainian banks. Requirements for modeling banking risks are growing in modern conditions. Recent financial and economic crises have demonstrated the devastating effects of unforeseen risks. The dynamic development of banking technologies and products requires a detailed analysis of the possible consequences of their implementation. Contingency losses require a probabilistic study. The buffer for the absorption of these losses is the capital of the bank. Losses from anticipated risks include the creation of reserves. The basis of modern approaches to risk modeling is the recommendations of the Basel Committee on Banking Supervision. The National Bank of Ukraine clearly regulates the requirements for the organization of risk management systems, but does not interfere in the construction of models. Banks develop internal policies, procedures and risk management models independently. In recent years, domestic banks have made significant progress in modeling and stress testing of risks. Each bank carries out a comprehensive assessment of at least the following significant types of risks: credit risk, liquidity risk, interest rate risk of the banking book, market risk, operational risk, compliance risk, and other significant types of risks. The issue of validation of risk assessment models by external experts is very relevant. Such specialists may be scientists who conduct research in the field of finance, banking and economic and mathematical methods of modeling complex systems. The interaction of scientists and practitioners has a double effect. Scholars are able to provide useful advice on the features of models and tools for assessing risks, systemic risks and financial stability of the banking sector at the macro level. Specific models of banks lay the foundations for current research topics of teachers and graduates. The authors of the article share the experience of model validation, analyze the current state of the banking system and the risk profile of domestic banks. Bank reporting data are considered in the dynamics and analyzed in terms of specific risks. The obtained conclusions are compared with the Risk Map of banks of the National Bank of Ukraine.

The National Cultural Policy Discussion Paper—drafted to assist the Australian Government in developing the first national Cultural Policy since Creative Nation nearly two decades ago—envisages a future in which arts, cultural and creative activities directly support the development of an inclusive, innovative and productive Australia. "The policy," it says, "will be based on an understanding that a creative nation produces a more inclusive society and a more expressive and confident citizenry by encouraging our ability to express, describe and share our diverse experiences—with each other and with the world" (Australian Government 3). Even a cursory reading of this Discussion Paper makes it clear that the question of impact—in aesthetic, cultural and economic terms—is central to the Government's agenda in developing a new Cultural Policy. Hand-in-hand with the notion of impact comes the process of measurement of progress. The Discussion Paper notes that progress "must be measurable, and the Government will invest in ways to assess the impact that the National Cultural Policy has on society and the economy" (11). If progress must be measurable, this raises questions about what arts, cultural and creative workers do, whether it is worth it, and whether they could be doing it better. In effect, the Discussion Paper pushes artsworkers ever closer to a climate in which they have to be skilled not just at making work, but at making the impact of this work clear to stakeholders. The Government in its plans for Australia's cultural future, is clearly most supportive of artsworkers who can do this, and the scholars, educators and employers who can best train the artsworkers of the future to do this. Teaching Artsworkers to Measure the Impact of Their Work: The Challenges How do we train artsworkers to assess, measure and articulate the impact of what they do? How do we prepare them to be ready to work in a climate that will—as the National Cultural Policy Discussion Paper makes clear—emphasise measuring impact, communicating impact, and communicating impact across aesthetic, cultural and economic categories? As educators delivering training in this area, the Discussion Paper has made this already compelling question even more pressing as we work to develop the career-ready graduates the Government seeks. Our program, the Master of Creative Industries (Creative Production & Arts Management) offered in the Creative Industries Faculty at Queensland University of Technology in Brisbane, Australia, is, like most programs in arts and cultural management in the US, UK, Europe and Australia, offering a three-Semester postgraduate program that allows students to develop the career-ready skills required to work as managers of arts, cultural or creative organisations. That we need to train our graduates to work not just as producers of plays, paintings or recordings, but as entrepreneurial arts advocates who can measure and articulate the value of their programs to others, is not news (Hadley "Creating" 647-48; cf. Brkic; Ebewo and Sirayi; Beckerman; Sikes). Our program—which offers training in arts policy, management, marketing and budgeting followed by training in entrepreneurship and a practical project—is already structured around this necessity. The question of how to teach students this diverse skill set is, however, still a subject of debate; and the question of how to teach students to measure the impact of this work is even more difficult. There is, of course, a body of literature on the impact of arts, cultural and creative activities, value and evaluation that has been developed over the past decade, particularly through landmark reports like Matarasso's Use or Ornament? The Social Impact of Participation in the Arts (1997) and the RAND Corporation's Gifts of the Muse: Reframing the Debate about the Benefits of the Arts (2004). There are also emergent studies in an Australian context: Madden's "Cautionary Note" on using economic impact studies in the arts (2001); case studies on arts and wellbeing by consultancy firm Effective Change (2003); case studies by DCITA (2003); the Asia Pacific Journal of Arts and Cultural Management (2009) issue on "value"; and Australia Council publications on arts, culture and economy. As Richards has explained, "evaluation is basically a straightforward concept. E-value-ation = a process of enquiry that allows a judgment of amount, value or worth to be made" (99). What makes arts evaluation difficult is not the concept, but the measurement of intangible values—aesthetic quality, expression, engagement or experience. In the literature, discussion has been plagued by debate about what is measured, what method is used, and whether subjective values can in fact be measured. Commentators note that in current practice, questions of value are still deferred because they are too difficult to measure (Bilton and Leary 52), discussed only in terms of economic measures such as market share or satisfaction which are statistically quantifiable (Belfiore and Bennett "Rethinking" 137), or done through un-rigorous surveys that draw only ambiguous, subjective, or selective responses (Merli 110). According to Belfiore and Bennett, Public debate about the value of the arts thus comes to be dominated by what might best be termed the cult of the measurable; and, of course, it is those disciplines primarily concerned with measurement, namely, economics and statistics, which are looked upon to find the evidence that will finally prove why the arts are so important to individuals and societies. A corollary of this is that the humanities are of little use in this investigation. ("Rethinking" 137) Accordingly, Ragsdale states, Arts organizations [still] need to find a way to assess their progress in …making great art that matters to people—as evidenced, perhaps, by increased enthusiasm, frequency of attendance, the capacity and desire to talk or write about one's experience, or in some other way respond to the experience, the curiosity to learn about the art form and the ideas encountered, the depth of emotional response, the quality of the social connections made, and the expansion of one's aesthetics over time. Commentators are still looking for a balanced approach (cf. Geursen and Rentschler; Falk and Dierkling), which evaluates aesthetic practices, business practices, audience response, and results for all parties, in tandem. An approach which evaluates intrinsic impacts, instrumental impacts, and the way each enables the other, in tandem—with an emphasis not on the numbers but on whether we are getting better at what we are doing. And, of course, allows evaluators of arts, cultural and creative activities to use creative arts methods—sketches, stories, bodily movements and relationships and so forth—to provide data to inform the assessment, so they can draw not just on statistical research methods but on arts, culture and humanities research methods. Teaching Artsworkers to Measure the Impact of Their Work: Our Approach As a result of this contested terrain, our method for training artsworkers to measure the impact of their programs has emerged not just from these debates—which tend to conclude by declaring the needs for better methods without providing them—but from a research-teaching nexus in which our own trial-and-error work as consultants to arts, cultural and educational organisations looking to measure the impact of or improve their programs has taught us what is effective. Each of us has worked as managers of professional associations such as Drama Australia and Australasian Association for Theatre, Drama and Performance Studies (ADSA), members of boards or committees for arts organisations such as Youth Arts Queensland and Young People and the Arts Australia (YPAA), as well as consultants to major cultural organisations like the Queensland Performing Arts Centre and the Brisbane Festival. The methods for measuring impact we have developed via this work are based not just on surveys and statistics, but on our own practice as scholars and producers of culture—and are therefore based in arts, culture and humanities approaches. As scholars, we investigate the way marginalised groups tell stories—particularly groups marked by age, gender, race or ability, using community, contemporary and public space performance practices (cf. Hadley, "Bree"; Gattenhof). What we have learned by bringing this sort of scholarly analysis into dialogue with a more systematised approach to articulating impact to government, stakeholders and sponsors is that there is no one-size-fits-all approach. What is needed, instead, is a toolkit, which incorporates central principles and stages, together with qualitative, quantitative and performative tools to track aesthetics, accessibility, inclusivity, capacity-building, creativity etc., as appropriate on a case-by-case basis. Whatever the approach, it is critical that the data track the relationship between the experience the artists, audience or stakeholders anticipated the activity should have, the aspects of the activity that enabled that experience to emerge (or not), and the effect of that (or not) for the arts organisation, their artists, their partners, or their audiences. The combination of methods needs to be selected in consultation with the arts organisation, and the negotiations typically need to include detailed discussion of what should be evaluated (aesthetics, access, inclusivity, or capacity), when it should be evaluated (before, during or after), and how the results should be communicated (including the difference between evaluation for reporting purposes and evaluation for program improvement purposes, and the difference between evaluation and related processes like reflection, documentary-making, or market research). Translating what we have learned through our cultural research and consultancy into a study package for students relies on an understanding of what they want from their study. This, typically, is practical career-ready skills. Students want to produce their own arts, or produce other people's arts, and most have not imagined themselves participating in meta-level processes in which they argue the value of arts, cultural and creative activities (Hadley, "Creating" 652). Accordingly, most have not thought of themselves as researchers, using cultural research methods to create reports that inform how the Australian government values, supports, and services the arts. The first step in teaching students to operate effectively as evaluators of arts, cultural and creative activities is, then, to re-orient their expectations to include this in their understanding of what artsworkers do, what skills artsworkers need, and where they deploy these skills. Simply handing over our own methods, as "the" methods, would not enable graduates to work effectively in a climate were one size will not fit all, and methods for evaluating impact need to be negotiated again for each new context. 1. Understanding the Need for Evaluation: Cause and Effect The first step in encouraging students to become effective evaluators is asking them to map their sector, the major stakeholders, the agendas, alignments and misalignments in what the various players are trying to achieve, and the programs, projects and products through which the players are trying to achieve it. This starting point is drawn from Program Theory—which, as Joon-Yee Kwok argues in her evaluation of the SPARK National Mentoring Program for Young and Emerging Artists (2010) is useful in evaluating cultural activities. The Program Theory approach starts with a flow chart that represents relationships between activities in a program, allowing evaluators to unpack some of the assumptions the program's producers have about what activities have what sort of effect, then test whether they are in fact having that sort of effect (cf. Hall and Hall). It could, for example, start with a flow chart representing the relationship between a community arts policy, a community arts organisation, a community-devised show it is producing, and a blog it has created because it assumes it will allow the public to become more interested in the show the participants are creating, to unpack the assumptions about the sort of effect this is supposed to have, and test whether this is in fact having this sort of effect. Masterclasses, conversations and debate with peers and industry professionals about the agendas, activities and assumptions underpinning programs in their sector allows students to look for elements that may be critical in their programs' ability to achieve (or not) an anticipated impact. In effect to start asking about, "the way things are done now, […] what things are done well, and […] what could be done better" (Australian Government 12).2. Understanding the Nature of Evaluation: PurposeOnce students have been alerted to the need to look for cause-effect assumptions that can determine whether or not their program, project or product is effective, they are asked to consider what data they should be developing about this, why, and for whom. Are they evaluating a program to account to government, stakeholders and sponsors for the money they have spent? To improve the way it works? To use that information to develop innovative new programs in future? In other words, who is the audience? Being aware of the many possible purposes and audiences for evaluation information can allow students to be clear not just about what needs to be evaluated, but the nature of the evaluation they will do—a largely statistical report, versus a narrative summary of experiences, emotions and effects—which may differ depending on the audience.3. Making Decisions about What to Evaluate: Priorities When setting out to measure the impact of arts, cultural or creative activities, many people try to measure everything, measure for the purposes of reporting, improvement and development using the same methods, or gather a range of different sorts of data in the hope that something in it will answer questions about whether an activity is having the anticipated effect, and, if so, how. We ask students to be more selective, making strategic decisions about which anticipated effects of a program, project or product need to be evaluated, whether the evaluation is for reporting, improvement or innovation purposes, and what information stakeholders most require. In addition to the concept of collecting data about critical points where programs succeed or fail in achieving a desired effect, and different approaches for reporting, improvement or development, we ask students to think about the different categories of effect that may be more or less interesting to different stakeholders. This is not an exhaustive list, or a list of things every evaluation should measure. It is a tool to demonstrate to would-be evaluators points of focus that could be developed, depending on the stakeholders' priorities, the purpose of the evaluation, and the critical points at which desired effects need to occur to ensure success. Without such framing, evaluators are likely to end up with unusable data, which become a difficulty to deal with rather than a benefit for the artsworkers, arts organisations or stakeholders. 4. Methods for Evaluation: Process To be effective, methods for collecting data about how arts, cultural or creative activities have (or fail to have) anticipated impact need to include conventional survey, interview and focus group style tools, and creative or performative tools such as discussion, documentation or observation. We encourage students to use creative practice to draw out people's experience of arts events—for example, observation, documentation still images, video or audio documentation, or facilitated development of sketches, stories or scenes about an experience, can be used to register and record people's feelings. These sorts of methods can capture what Mihaly Csikszentmihalyi calls "flow" of experience (cf. Belfiore and Bennett, "Determinants" 232)—for example, photos of a festival space at hourly intervals or the colours a child uses to convey memory of a performance can capture to flow of movement, engagement, and experience for spectators more clearly than statistics. These, together with conventional surveys or interviews that comment on the feelings expressed, allow for a combination of quantitative, qualitative and performative data to demonstrate impact. The approach becomes arts- and humanities- based, using arts methods to encourage people to talk, write or otherwise respond to their experience in terms of emotion, connection, community, or expansion of aesthetics. The evaluator still needs to draw out the meaning of the responses through content, text or discourse analysis, and teaching students how to do a content analysis of quantitative, qualitative and performative data is critical at this stage. When teaching students how to evaluate their data, our method encourages students not just to focus on the experience, or the effect of the experience, but the relationship between the two—the things that act as "enablers" "determinants" (White and Hede; Belfiore and Bennett, "Determinants" passim) of effect. This approach allows the evaluator to use a combination of conventional and creative methods to describe not just what effect an activity had, but, more critically, what enabled it to have that effect, providing a firmer platform for discussing the impact, and how it could be replicated, developed or deepened next time, than a list of effects and numbers of people who felt those effects alone. 5. Communicating Results: Politics Often arts, cultural or creative organisations can be concerned about the image of their work an evaluation will create. The final step in our approach is to alert students to the professional, political and ethical implications of evaluation. Students learn to share their knowledge with organisations, encouraging them to see the value of reporting both correct and incorrect assumptions about the impact of their activities, as part of a continuous improvement process. Then we assist them in drawing the results of this sort of cultural research into planning, development and training documents which may assist the organisation in improving in the future. In effect, it is about encouraging organisations to take the Australian government at its word when, in the National Cultural Policy Discussion Paper, it says it that measuring impact is about measuring progress—what we do well, what we could do better, and how, not just success statistics about who is most successful—as it is this that will ultimately be most useful in creating an inclusive, innovative, productive Australia. Teaching Artsworkers to Measure the Impact of Their Work: The Impact of Our Approach What, then, is the impact of our training on graduates' ability to measure the impact of work? Have we made measurable progress in our efforts to teach artsworkers to assess and articulate the impact of their work? The MCI (CP&AM) has been offered for three years. Our approach is still emergent and experimental. We have, though, identified a number of impacts of our work. First, our students are less fearful of becoming involved in measuring the value or impact of arts, cultural and creative programs. This is evidenced by the number who chooses to do some sort of evaluation for their Major Project, a 15,000 word individual project or internship which concludes their degree. Of the 50 or so students who have reached the Major Project in three years—35 completed and 15 in planning for 2012—about a third have incorporated evaluation into their Major Project. This includes evaluation of sector, business or producing models (5), youth arts and youth arts mentorship programs (4), audience development programs (2), touring programs (4), and even other arts management training programs (1). Indeed, after internships in programming or producing roles, this work—aligned with the Government's interest in improving training of young artists, touring, audience development, and economic development—has become a most popular Major Project option. This has enabled students to work with a range of arts, cultural and creative organisations, share their training—their methods, their understanding of what their methods can measure, when, and how—with Industry. Second, this Industry-engaged training has helped graduates in securing employment. This is evidenced by the fact that graduates have gone on to be employed with organisations they have interned with as part of their Major Project, or other organisations, including some of Brisbane's biggest cultural organisations—local and state government departments, Queensland Performing Arts Centre, Brisbane Festival, Metro Arts, Backbone Youth Arts, and Youth Arts Queensland, amongst others. Thirdly, graduates' contribution to local organisations and industry has increased the profile of a relatively new program. This is evidenced by the fact that it enrols 40 to 50 new students a year across Graduate Certificate / MCI (CP&AM) programs, typically two thirds domestic students and one third international students from Canada, Germany, France, Denmark, Norway and, of course, China. Indeed, some students are now disseminating this work globally, undertaking their Major Project as an internship or industry project with an organisation overseas. In effect, our training's impact emerges not just from our research, or our training, but from the fact that our graduates disseminate our approach to a range of arts, cultural and creative organisations in a practical way. We have, as a result, expanded the audience for this approach, and the number of people and contexts via which it is being adapted and made useful. Whilst few of students come into our program with a desire to do this sort of work, or even a working knowledge of the policy that informs it, on completion many consider it a viable part of their practice and career pathway. When they realise what they can achieve, and what it can mean to the organisations they work with, they do incorporate research, research consultant and government roles as part of their career portfolio, and thus make a contribution to the strong cultural sector the Government envisages in the National Cultural Policy Discussion Paper. Our work as scholars, practitioners and educators has thus enabled us to take a long-term, processual and grassroots approach to reshaping agendas for approaches to this form of cultural research, as our practices are adopted and adapted by students and industry stakeholders. Given the challenges commentators have identified in creating and disseminating effective evaluation methods in arts over the past decade, this, for us—though by no means work that is complete—does count as measurable progress. References Beckerman, Gary. "Adventuring Arts Entrepreneurship Curricula in Higher Education: An Examination of Present Efforts, Obstacles, and Best pPractices." The Journal of Arts Management, Law, and Society 37.2 (2007): 87-112. Belfiore, Eleaonora, and Oliver Bennett. "Determinants of Impact: Towards a Better Understanding of Encounters with the Arts." Cultural Trends 16.3 (2007): 225-75. ———. "Rethinking the Social Impacts of the Arts." International Journal of Cultural Policy 13.2 (2007): 135-51. Bilton, Chris, and Ruth Leary. "What Can Managers Do for Creativity? Brokering Creativity in the Creative Industries." International Journal of Cultural Policy 8.1 (2002): 49-64. Brkic, Aleksandar. "Teaching Arts Management: Where Did We Lose the Core Ideas?" Journal of Arts Management, Law and Society 38.4 (2009): 270-80. Czikszentmihalyi, Mihaly. "A Systems Perspective on Creativity." Creative Management. Ed. Jane Henry. Sage: London, 2001. 11-26. Australian Government. "National Cultural Policy Discussion Paper." Department of Prime Minster and Cabinet – Office for the Arts 2011. 1 Oct. 2011 ‹http://culture.arts.gov.au/discussion-paper›. Ebewo, Patrick, and Mzo Sirayi. "The Concept of Arts/Cultural Management: A Critical Reflection." Journal of Arts Management, Law and Society 38.4 (2009): 281-95. Effective Change and VicHealth. Creative Connections: Promoting Mental Health and Wellbeing through Community Arts Participation 2003. 1 Oct. 2011 ‹http://www.vichealth.vic.gov.au/en/Publications/Social-connection/Creative-Connections.aspx›. Effective Change. Evaluating Community Arts and Community Well Being 2003. 1 Oct. 2011 ‹http://www.arts.vic.gov.au/Research_and_Resources/Resources/Evaluating_Community_Arts_and_Wellbeing›. Falk, John H., and Lynn. D Dierking. "Re-Envisioning Success in the Cultural Sector." Cultural Trends 17.4 (2008): 233-46. Gattenhof, Sandra. "Sandra Gattenhof." QUT ePrints Article Repository. Queensland University of Technology, 2011. 1 Oct. 2011 ‹http://eprints.qut.edu.au/view/person/Gattenhof,_Sandra.html›. Geursen, Gus and Ruth Rentschler. "Unravelling Cultural Value." The Journal of Arts Management, Law and Society 33.3 (2003): 196-210. Hall, Irene and David Hall. Evaluation and Social Research: Introducing Small Scale Practice. London: Palgrave McMillan, 2004. Hadley, Bree. "Bree Hadley." QUT ePrints Article Repository. Queensland University of Technology, 2011. 1 Oct. 2011 ‹http://eprints.qut.edu.au/view/person/Hadley,_Bree.html›. ———. "Creating Successful Cultural Brokers: The Pros and Cons of a Community of Practice Approach in Arts Management Education." Asia Pacific Journal of Arts and Cultural Management 8.1 (2011): 645-59. Kwok, Joon. When Sparks Fly: Developing Formal Mentoring Programs for the Career Development of Young and Emerging Artists. Masters Thesis. Brisbane: Queensland University of Technology, 2010. Madden, Christopher. "Using 'Economic' Impact Studies in Arts and Cultural Advocacy: A Cautionary Note." Media International Australia, Incorporating Culture & Policy 98 (2001): 161-78. Matarasso, Francis. Use or Ornament? The Social Impact of Participation in the Arts. Bournes Greens, Stroud: Comedia, 1997. McCarthy, Kevin. F., Elizabeth H. Ondaatje, Laura Zakaras, and Arthur Brooks. Gifts of the Muse: Reframing the Debate about the Benefits of the Arts. Santa Monica: RAND Corporation, 2004. Merli, Paola. "Evaluating the Social Impact of Participation in Arts Activities." International Journal of Cultural Policy 8.1 (2002): 107-18. Muir, Jan. The Regional Impact of Cultural Programs: Some Case Study Findings. Communications Research Unit - DCITA, 2003. Ragsdale, Diana. "Keynote - Surviving the Culture Change." Australia Council Arts Marketing Summit. Australia Council for the Arts: 2008. Richards, Alison. "Evaluation Approaches." Creative Collaboration: Artists and Communities. Melbourne: Victorian College of the Arts, University of Melbourne, 2006. Sikes, Michael. "Higher Education Training in Arts Administration: A Millennial and Metaphoric Reappraisal. Journal of Arts Management, Law and Society 30.2 (2000): 91-101.White, Tabitha, and Anne-Marie Hede. "Using Narrative Inquiry to Explore the Impact of Art on Individuals." Journal of Arts Management, Law, and Society 38.1 (2008): 19-35.

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ABSTRACT The purpose of this study is to illustrate how the basic Real Business Cycle (RBC) model can be modified to incorporate money in an attempt to construct monetary business cycle models of the U.S. economy. This is done for one case where money enters the model as direct lump-sum transfers to households and for the other case where money injections enter the economy through the financial system. Interestingly, the two channels generate very different responses to a money growth shock. In the first case, a positive money growth shock increases nominal interest rates and depresses economic activity, which is called the anticipated inflation effect. However, the popular consensus among economists is that nominal interest rates fall after a positive monetary shock. This motivates the construction of our second model where it is conjectured that the banking sector plays an important role in the monetary transmission mechanism and money is injected into the model through financial intermediaries. It is observed in this model that a positive monetary shock reduces interest rates and stimulates economic activity, which is called the liquidity effect. Furthermore, the statistics generated by the models show that monetary shocks have no effect on real variables when money enters as direct lump-sum transfers to households. On the contrary, such shocks have significant real impact when money enters through the financial system. Taken together, this implies that how money enters into the model significantly matters for the impact of monetary shocks and such shocks entering through financial intermediaries may be important in determining the cyclical fluctuations of the U.S. economy.
Thesis (B.Ec.(Hons)) -- University of Adelaide, School of Economics, 2017

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

Macroeconomic summary Several factors contributed to an increase in projected inflation on the forecast horizon, keeping it above the target rate. These included inflation in December that surpassed expectations (5.62%), indexation to higher inflation rates for various baskets in the consumer price index (CPI), a significant real increase in the legal minimum wage, persistent external and domestic inflationary supply shocks, and heightened exchange rate pressures. The CPI for foods was affected by the persistence of external and domestic supply shocks and was the most significant contributor to unexpectedly high inflation in the fourth quarter. Price adjustments for fuels and certain utilities can explain the acceleration in inflation for regulated items, which was more significant than anticipated. Prices in the CPI for goods excluding food and regulated items also rose more than expected. This was partly due to a smaller effect on prices from the national government’s VAT-free day than anticipated by the technical staff and more persistent external pressures, including via peso depreciation. By contrast, the CPI for services excluding food and regulated items accelerated less than expected, partly reflecting strong competition in the communications sector. This was the only major CPI basket for which prices increased below the target inflation rate. The technical staff revised its inflation forecast upward in response to certain external shocks (prices, costs, and depreciation) and domestic shocks (e.g., on meat products) that were stronger and more persistent than anticipated in the previous report. Observed inflation and a real increase in the legal minimum wage also exceeded expectations, which would boost inflation by affecting price indexation, labor costs, and inflation expectations. The technical staff now expects year-end headline inflation of 4.3% in 2022 and 3.4% in 2023; core inflation is projected to be 4.5% and 3.6%, respectively. These forecasts consider the lapse of certain price relief measures associated with the COVID-19 health emergency, which would contribute to temporarily keeping inflation above the target on the forecast horizon. It is important to note that these estimates continue to contain a significant degree of uncertainty, mainly related to the development of external and domestic supply shocks and their ultimate effects on prices. Other contributing factors include high price volatility and measurement uncertainty related to the extension of Colombia’s health emergency and tax relief measures (such as the VAT-free days) associated with the Social Investment Law (Ley de Inversión Social). The as-yet uncertain magnitude of the effects of a recent real increase in the legal minimum wage (that was high by historical standards) and high observed and expected inflation, are additional factors weighing on the overall uncertainty of the estimates in this report. The size of excess productive capacity remaining in the economy and the degree to which it is closing are also uncertain, as the evolution of the pandemic continues to represent a significant forecast risk. margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. The technical staff revised its GDP growth projection for 2022 from 4.7% to 4.3% (Graph 1.3). This revision accounts for the likelihood that a larger portion of the recent positive dynamic in private consumption would be transitory than previously expected. This estimate also contemplates less dynamic investment behavior than forecast in the previous report amid less favorable financial conditions and a highly uncertain investment environment. Third-quarter GDP growth (12.9%), which was similar to projections from the October report, and the fourth-quarter growth forecast (8.7%) reflect a positive consumption trend, which has been revised upward. This dynamic has been driven by both public and private spending. Investment growth, meanwhile, has been weaker than forecast. Available fourth-quarter data suggest that consumption spending for the period would have exceeded estimates from October, thanks to three consecutive months that included VAT-free days, a relatively low COVID-19 caseload, and mobility indicators similar to their pre-pandemic levels. By contrast, the most recently available figures on new housing developments and machinery and equipment imports suggest that investment, while continuing to rise, is growing at a slower rate than anticipated in the previous report. The trade deficit is expected to have widened, as imports would have grown at a high level and outpaced exports. Given the above, the technical staff now expects fourth-quarter economic growth of 8.7%, with overall growth for 2021 of 9.9%. Several factors should continue to contribute to output recovery in 2022, though some of these may be less significant than previously forecast. International financial conditions are expected to be less favorable, though external demand should continue to recover and terms of trade continue to increase amid higher projected oil prices. Lower unemployment rates and subsequent positive effects on household income, despite increased inflation, would also boost output recovery, as would progress in the national vaccination campaign. The technical staff expects that the conditions that have favored recent high levels of consumption would be, in large part, transitory. Consumption spending is expected to grow at a slower rate in 2022. Gross fixed capital formation (GFCF) would continue to recover, approaching its pre-pandemic level, though at a slower rate than anticipated in the previous report. This would be due to lower observed GFCF levels and the potential impact of political and fiscal uncertainty. Meanwhile, the policy interest rate would be less expansionary as the process of monetary policy normalization continues. Given the above, growth in 2022 is forecast to decelerate to 4.3% (previously 4.7%). In 2023, that figure (3.1%) is projected to converge to levels closer to the potential growth rate. In this case, excess productive capacity would be expected to tighten at a similar rate as projected in the previous report. The trade deficit would tighten more than previously projected on the forecast horizon, due to expectations of an improved export dynamic and moderation in imports. The growth forecast for 2022 considers a low basis of comparison from the first half of 2021. However, there remain significant downside risks to this forecast. The current projection does not, for example, account for any additional effects on economic activity resulting from further waves of COVID-19. High private consumption levels, which have already surpassed pre-pandemic levels by a large margin, could be less dynamic than expected. And the normalization of monetary policy in the United States could come more quickly than projected in this report, which could negatively affect international financing costs. Finally, there remains a significant degree of uncertainty related to the duration of supply chocks and the degree to which macroeconomic and political conditions could negatively affect the recovery in investment. External demand for Colombian goods and services should continue to recover amid significant global inflation pressures, high oil prices, and less favorable international financial conditions than those estimated in October. Economic activity among Colombia’s major trade partners recovered in 2021 amid countries reopening and ample international liquidity. However, that growth has been somewhat restricted by global supply chain disruptions and new outbreaks of COVID-19. The technical staff has revised its growth forecast for Colombia’s main trade partners from 6.3% to 6.9% for 2021, and from 3.4% to 3.3% for 2022; trade partner economies are expected to grow 2.6% in 2023. Colombia’s annual terms of trade increased in 2021, largely on higher oil, coffee, and coal prices. This improvement came despite increased prices for goods and services imports. The expected oil price trajectory has been revised upward, partly to supply restrictions and lagging investment in the sector that would offset reduced growth forecasts in some major economies. Elevated freight and raw materials costs and supply chain disruptions continue to affect global goods production, and have led to increases in global prices. Coupled with the recovery in global demand, this has put upward pressure on external inflation. Several emerging market economies have continued to normalize monetary policy in this context. Meanwhile, in the United States, the Federal Reserve has anticipated an end to its asset buying program. U.S. inflation in December (7.0%) was again surprisingly high and market average inflation forecasts for 2022 have increased. The Fed is expected to increase its policy rate during the first quarter of 2022, with quarterly increases anticipated over the rest of the year. For its part, Colombia’s sovereign risk premium has increased and is forecast to remain on a higher path, to levels above the 15-year-average, on the forecast horizon. This would be partly due to the effects of a less expansionary monetary policy in the United States and the accumulation of macroeconomic imbalances in Colombia. Given the above, international financial conditions are projected to be less favorable than anticipated in the October report. The increase in Colombia’s external financing costs could be more significant if upward pressures on inflation in the United States persist and monetary policy is normalized more quickly than contemplated in this report. As detailed in Section 2.3, uncertainty surrounding international financial conditions continues to be unusually high. Along with other considerations, recent concerns over the potential effects of new COVID-19 variants, the persistence of global supply chain disruptions, energy crises in certain countries, growing geopolitical tensions, and a more significant deceleration in China are all factors underlying this uncertainty. The changing macroeconomic environment toward greater inflation and unanchoring risks on inflation expectations imply a reduction in the space available for monetary policy stimulus. Recovery in domestic demand and a reduction in excess productive capacity have come in line with the technical staff’s expectations from the October report. Some upside risks to inflation have materialized, while medium-term inflation expectations have increased and are above the 3% target. Monetary policy remains expansionary. Significant global inflationary pressures and the unexpected increase in the CPI in December point to more persistent effects from recent supply shocks. Core inflation is trending upward, but remains below the 3% target. Headline and core inflation projections have increased on the forecast horizon and are above the target rate through the end of 2023. Meanwhile, the expected dynamism of domestic demand would be in line with low levels of excess productive capacity. An accumulation of macroeconomic imbalances in Colombia and the increased likelihood of a faster normalization of monetary policy in the United States would put upward pressure on sovereign risk perceptions in a more persistent manner, with implications for the exchange rate and the natural rate of interest. Persistent disruptions to international supply chains, a high real increase in the legal minimum wage, and the indexation of various baskets in the CPI to higher inflation rates could affect price expectations and push inflation above the target more persistently. These factors suggest that the space to maintain monetary stimulus has continued to diminish, though monetary policy remains expansionary. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) in its meetings in December 2021 and January 2022 voted to continue normalizing monetary policy. The BDBR voted by a majority in these two meetings to increase the benchmark interest rate by 50 and 100 basis points, respectively, bringing the policy rate to 4.0%.

In the second quarter, annual inflation (9.67%), the technical staff’s projections and its expectations continued to increase, remaining above the target. International cost shocks, accentuated by Russia's invasion of Ukraine, have been more persistent than projected, thus contributing to higher inflation. The effects of indexation, higher than estimated excess demand, a tighter labor market, inflation expectations that continue to rise and currently exceed 3%, and the exchange rate pressures add to those described above. High core inflation measures as well as in the producer price index (PPI) across all baskets confirm a significant spread in price increases. Compared to estimates presented in April, the new forecast trajectory for headline and core inflation increased. This was partly the result of greater exchange rate pressure on prices, and a larger output gap, which is expected to remain positive for the remainder of 2022 and which is estimated to close towards yearend 2023. In addition, these trends take into account higher inflation rate indexation, more persistent above-target inflation expectations, a quickening of domestic fuel price increases due to the correction of lags versus the parity price and higher international oil price forecasts. The forecast supposes a good domestic supply of perishable foods, although it also considers that international prices of processed foods will remain high. In terms of the goods sub-basket, the end of the national health emergency implies a reversal of the value-added tax (VAT) refund applied to health and personal hygiene products, resulting in increases in the prices of these goods. Alternatively, the monetary policy adjustment process and the moderation of external shocks would help inflation and its expectations to begin to decrease over time and resume their alignment with the target. Thus, the new projection suggests that inflation could remain high for the second half of 2022, closing at 9.7%. However, it would begin to fall during 2023, closing the year at 5.7%. These forecasts are subject to significant uncertainty, especially regarding the future behavior of external cost shocks, the degree of indexation of nominal contracts and decisions made regarding the domestic price of fuels. Economic activity continues to outperform expectations, and the technical staff’s growth projections for 2022 have been revised upwards from 5% to 6.9%. The new forecasts suggest higher output levels that would continue to exceed the economy’s productive capacity for the remainder of 2022. Economic growth during the first quarter was above that estimated in April, while economic activity indicators for the second quarter suggest that the GDP could be expected to remain high, potentially above that of the first quarter. Domestic demand is expected to maintain a positive dynamic, in particular, due to the household consumption quarterly growth, as suggested by vehicle registrations, retail sales, credit card purchases and consumer loan disbursement figures. A slowdown in the machinery and equipment imports from the levels observed in March contrasts with the positive performance of sales and housing construction licenses, which indicates an investment level similar to that registered for the first three months of the year. International trade data suggests the trade deficit would be reduced as a consequence of import levels that would be lesser than those observed in the first quarter, and stable export levels. For the remainder of the year and 2023, a deceleration in consumption is expected from the high levels seen during the first half of the year, partially as a result of lower repressed demand, tighter domestic financial conditions and household available income deterioration due to increased inflation. Investment is expected to continue its slow recovery while remaining below pre-pandemic levels. The trade deficit is expected to tighten due to projected lower domestic demand dynamics, and high prices of oil and other basic goods exported by the country. Given the above, economic growth in the second quarter of 2022 would be 11.5%, and for 2022 and 2023 an annual growth of 6.9% and 1.1% is expected, respectively. Currently, and for the remainder of 2022, the output gap would be positive and greater than that estimated in April, and prices would be affected by demand pressures. These projections continue to be affected by significant uncertainty associated with global political tensions, the expected adjustment of monetary policy in developed countries, external demand behavior, changes in country risk outlook, and the future developments in domestic fiscal policy, among others. The high inflation levels and respective expectations, which exceed the target of the world's main central banks, largely explain the observed and anticipated increase in their monetary policy interest rates. This environment has tempered the growth forecast for external demand. Disruptions in value chains, rising international food and energy prices, and expansionary monetary and fiscal policies have contributed to the rise in inflation and above-target expectations seen by several of Colombia’s main trading partners. These cost and price shocks, heightened by the effects of Russia's invasion of Ukraine, have been more prevalent than expected and have taken place within a set of output and employment recovery, variables that in some countries currently equal or exceed their projected long-term levels. In response, the U.S. Federal Reserve accelerated the pace of the benchmark interest rate increase and rapidly reduced liquidity levels in the money market. Financial market actors expect this behavior to continue and, consequently, significantly increase their expectations of the average path of the Fed's benchmark interest rate. In this setting, the U.S. dollar appreciated versus the peso in the second quarter and emerging market risk measures increased, a behavior that intensified for Colombia. Given the aforementioned, for the remainder of 2022 and 2023, the Bank's technical staff increased the forecast trajectory for the Fed's interest rate and reduced the country's external demand growth forecast. The projected oil price was revised upward over the forecast horizon, specifically due to greater supply restrictions and the interruption of hydrocarbon trade between the European Union and Russia. Global geopolitical tensions, a tightening of monetary policy in developed economies, the increase in risk perception for emerging markets and the macroeconomic imbalances in the country explain the increase in the projected trajectory of the risk premium, its trend level and the neutral real interest rate1. Uncertainty about external forecasts and their consequent impact on the country's macroeconomic scenario remains high, given the unpredictable evolution of the conflict between Russia and Ukraine, geopolitical tensions, the degree of the global economic slowdown and the effect the response to recent outbreaks of the pandemic in some Asian countries may have on the world economy. This macroeconomic scenario that includes high inflation, inflation forecasts, and expectations above 3% and a positive output gap suggests the need for a contractionary monetary policy that mitigates the risk of the persistent unanchoring of inflation expectations. In contrast to the forecasts of the April report, the increase in the risk premium trend implies a higher neutral real interest rate and a greater prevailing monetary stimulus than previously estimated. For its part, domestic demand has been more dynamic, with a higher observed and expected output level that exceeds the economy’s productive capacity. The surprising accelerations in the headline and core inflation reflect stronger and more persistent external shocks, which, in combination with the strength of aggregate demand, indexation, higher inflation expectations and exchange rate pressures, explain the upward projected inflation trajectory at levels that exceed the target over the next two years. This is corroborated by the inflation expectations of economic analysts and those derived from the public debt market, which continued to climb and currently exceed 3%. All of the above increase the risk of unanchoring inflation expectations and could generate widespread indexation processes that may push inflation away from the target for longer. This new macroeconomic scenario suggests that the interest rate adjustment should continue towards a contractionary monetary policy landscape. 1.2. Monetary policy decision Banco de la República’s Board of Directors (BDBR), at its meetings in June and July 2022, decided to continue adjusting its monetary policy. At its June meeting, the BDBR decided to increase the monetary policy rate by 150 basis points (b.p.) and its July meeting by majority vote, on a 150 b.p. increase thereof at its July meeting. Consequently, the monetary policy interest rate currently stands at 9.0% . 1 The neutral real interest rate refers to the real interest rate level that is neither stimulative nor contractionary for aggregate demand and, therefore, does not generate pressures that lead to the close of the output gap. In a small, open economy like Colombia, this rate depends on the external neutral real interest rate, medium-term components of the country risk premium, and expected depreciation. Box 1: A Weekly Indicator of Economic Activity for Colombia Juan Pablo Cote Carlos Daniel Rojas Nicol Rodriguez Box 2: Common Inflationary Trends in Colombia Carlos D. Rojas-Martínez Nicolás Martínez-Cortés Franky Juliano Galeano-Ramírez Box 3: Shock Decomposition of 2021 Forecast Errors Nicolás Moreno Arias